Friday, January 19, 2018

Boeing is unsuccessful in attempts to omit ‘lap dog’ references from shareholder proposals

By Jacquelyn Lumb

Boeing Company was unable to convince the Division of Corporation Finance that it could omit portions of three separate shareholder proposals from its proxy materials—one seeking a requirement that the chairman be an independent member of the board, one to require shareholder approval to increase the number of board members, and one giving holders of 10 percent of the outstanding shares the power to call a special shareholder meeting. In each case, Boeing sought to omit portions of the supporting statements on the basis that they impugned character, integrity, or personal reputation without a factual foundation in violation of Rule 14a-9.

Lap dog reference. In the proposals to give shareholders the power to call special meetings and to require an independent chairman, the supporting statements referred to the 20-year tenure of lead director Kenneth Duberstein and suggested that his lengthy tenure may make him “a lap dog.” Both proposals also noted that a director with only one-year’s tenure has received a negative vote that is five times higher than the other directors. In the proposal relating to board expansion, the supporting statement notes that CEO directors can tend to be lap dogs for a fellow CEO, and Boeing recently added two CEOs to its board.

In the proponents’ view, a lengthy tenure can detract from a director’s independence regardless of his or her qualifications. They also noted that Duberstein’s experience as a long-time lobbyist may not be an asset and raised concerns that the directors who are CEOs may show deference to each other which may not be in the best interest of shareholders. In addition, the board has grown to what they see as the “unwieldy” size of 14 directors, which the proponents believe can lead to CEO domination. The size of the board increased last year from 12 to 14 without a shareholder vote, according to the proponents.

Impugning character. Boeing asked the staff to concur with its view that it could omit the lap dog references in the supporting statements because they impugned the character, integrity or personal reputation of a director without a factual foundation. The accusations are baseless, Boeing argued, and it defended Duberstein for having a distinguished record as a Boeing director, the chairman of a preeminent strategic consulting firm, and a former White House chief of staff. The proponents provided no basis for their unfounded attacks, according to Boeing. Boeing also advised that each of the sitting CEOs on its board is a respected and preeminent leader in corporate America.

Staff response. In response to each of the no-action letter requests, the staff advised that it was unable to concur with Boeing’s wish to exclude the lap dog portions of the supporting statements in reliance on Rule 14a-8(i)(3) because it was unable to conclude that the references impugned character, integrity or personal reputation in violation of Rule 14a-9.